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General Motors Company: What's Wrong With Cadillac

With the release of June's auto sales results, we get a glimpse into how the automakers are doing for the first half of 2014. Overall, 8.17 million cars have been sold over the past six months in the U.S., a 4.3% increase from last year. However, I noticed one laggard in particular: Cadillac.

For whatever reason, General Motors' (NYSE: GM) Cadillac brand is slightly lagging the broader industry's gains, with a year-to-date sales drop of 2%.

Even more so, it's notably lagging other key luxury automakers. Below is a look at Cadillac compared to other brands:

It's interesting that, given the resurgence in other luxury automobiles, Cadillac is lagging behind by such a noticeable amount. Of the 10 automakers above, seven have posted double-digit sales gains, while only one, Cadillac, has posted a year-to-date sales drop.

Maybe this is part of a bigger story related to General MotorsAfter seeing that other luxury automakers were increasing car sales and Cadillac was not, my thoughts shifted more specifically to General Motors.

GM has struggled with its recall issues, costing it billions of dollars and involving nearly 30 million vehicles. Perhaps Americans no longer want to buy a brand they feel has been neglected by the company. But when you break down General Motors' sales by brand, that doesn't appear to be the answer, either. Have a look:

So, what exactly is the problem?If higher-earning Americans are still scooping up luxury rides, and the public hasn't found General Motors distasteful following the ignition switch issue, then what is holding back Cadillac sales?

Cadillac CTS-V Coupe. Source: General Motors.

It's likely a number of things, one of which could be pricing. In "Did You Notice Cadillac's Pricey Mistake", we took a look at how Cadillac's price increases on key models could be hindering its sales.

Cadillac CTS and Escalade prices increased by 15% and 12%, respectively, from year ago levels. And although sales are hanging in there -- up 5.8% for the CTS and down 2% for the Escalade -- it may be forcing many customers to think twice about buying a new model or re-upping a new lease, despite the 2015 CTS winning Motor Trend's "Car of the Year" awards.

Also, the bump in CTS sales is likely coming at the expense of the Cadillac XTS. The XTS -- which is quite similar to the CTS -- has seen sales drop 21.8% compared to year-ago figures.

Furthermore, Cadillac is losing ground in the lower-priced luxury car market with its Cadillac ATS, which starts at $33,000, and sales of which are down 22.3% year over year.

While the BMW 3 and 4 Series are a little pricier, starting at $32,750 and $40,000, respectively, the Mercedes-Benz's CLA Class and Audi A3 both start at just $29,900.

Cadillac Escalade. Source: General Motors.

The Audi A3 and Mercedes-Benz CLA Class are relatively new and are rapidly gobbling up market share in the lower-priced luxury market. The BMW 3 and 4 Series sales, which are reported together, are up 15.2% year to date, compared to last year, signaling that the ATS is not winning over customers the way its foreign competitors are.

The Cadillac ELR electric model has completely failed to take off, with less than 400 models sold year to date.

The only sales Cadillac can truly brag about come from the SRX. Sales for the crossover are up 20.3% so far in 2014, compared to 2013.

In 2013, the ATS and XTS both outsold every Cadillac model, with the exception of the SRX. With sales plummeting more than 20% so far in 2014, its no wonder the brand's overall sales are hurting.

FinalthoughtsCadillac sales may be weak in the U.S., but that doesn't mean General Motors is doomed. Overall, deliveries climbed 12% in the first half of 2014, on the back of a 72% increase in China.

Still, it's concerning to see the automaker's luxury lineup struggle in the States, as GM depends on Cadillac to drive higher margins. With sales failing to gain steam, margins in the U.S. could be lower than many investors had been anticipating.

Although this is not catastrophic for the company, it's something investors may want to keep an eye on going forward, as the trend may worsen over time.

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The name Cadillac no longer has that cachet that now imbues names like Mercedes Benz, Infinity, Lexus, BMW, Jaguar, etc. Cadillac's are really just Chevrolets with a different body style and a higher price tag. It may be time for GM to drop the Cadillac name and invent a new one.

There is absolutely nothing wrong with them. Sales of the Escalade are on fire (gangstas and rappers will buy nothing else) and the XTS and CTS are slam dunks with the retirees and livery depts. The only one that doesn't seem to resonate with customers is the expensive ELR which is too small and has difficult ingress/egress for the elderly folks. Even the ATS is too small and cramped for these people.

But as a brand, Cadillac has not lost its moxie and will continue to be a stepping stone for long time Buick owners to move up to.

It's hardly a mystery. Cadillac simply has no aspirational value and the very segment it needs most has no desire to own one. Except for a handful of athletes and rappers in their Escalades, nobody dreams of marching into their local Cadillac store once they've finally cashed that bonus check,

As evidenced by the fact that GM can't give away what's arguably been the world's finest performance sedan at half the price of lesser class competitors, Cadillac's problem isn't product. Although Cadillac can't prosper without world class product, people remain willing to pay far more even if it means receiving far less to see a rounded, three-pointed star or interlocked rings in their driveway or executive parking spaze rather than a laurel and shield - or more precisely, for their neighbors and co-workers to see a more prestigious emblem parked there.

It doesn't help that many of the buyers Cadillac needs most fully understand how Cadillac continues to exist, which results from a set of circumstances and values most have earned the resources Cadillac wants them to spend by working against.

Lastly, both Lincoln AND Cadillac are mired in the habit of making impressions of luxury vehicles because they lack the ability to create products that are inherently luxurious themselves. Forcing angular styling (or "split wing" grilles) upon customers for the sake of being distinctive raider than developing styling whose organic beauty speaks for itself will prevent either brand from being taken as seriously as it needs. After all, despite starving Lincoln of resources for more than a decade and taking its first tentative steps, Lincoln trails Cadillac in North American volume by barely more than one model's worth of business despite lacking an Escalade that dominates its category.

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At The Motley Fool I cover consumer goods and industrial companies, and mainly the automakers. I am a long-term investor looking for companies with sustainable and above average growth. I also like to uncover value, dividend-paying companies. Follow me on Twitter @BretKenwell